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The Moral Bottom Line: What Happens when a Private Equity Firm Buys a Company

But you’ll never get to pick and choose
She’s bought you and sold you
There ain’t no shoestrings on Louise

No Shoestrings on Louise

Lyrics by Bernie Taupin

(c) 1969 Dick James Music Ltd.

Once again, corporate America treats people like chess pieces. When I got to work on the Monday morning after Thanksgiving, I was greeted with the following headline: “Buyout Firms Said [to] Vie for World’s Largest Cigar Company.” World’s largest cigar company; gee, I wonder which company that is? Yup, it’s mine. We knew this was coming, but now it has hit the street in a big way.

According to Rueters UK edition:

“Nov 28 (Reuters) – Swedish Match AB and Skandinavisk Holding, the owners of Scandinavian Tobacco Group (STG), are in talks with private equity firms about a possible sale of the cigar maker, two sources familiar with the matter said on Friday.
First round bids are due on Dec. 18, the sources said.

Bloomberg reported earlier on Friday that CVC Capital Partners Ltd, Rhone Capital LLC and Pamplona Capital Management LLP were bidding for STG, and that the company could fetch about $2 billion.”

Is that money or pot?
I thought it was ground up bills at first, but now I’m not so sure.

Being the research geek that I am, my first thought was to do some research on what happens to employees like me when a company is bought by a private equity firm. The results of my research were unsettling, to say the least. For example, I found a blog entry by an engineer who worked for Silver Lake, which was bought from eBay by a private equity firm. The title of his blog entry:
“How employees get screwed in private equity deals“. Oh, goody, something to look forward to. The heart of the article describes how the employee got screwed out of vested stock options when he left the company, all because he did not understand the following provision of the stock option agreement:

“If, in connection with the termination of a Participant’s Employment, the Ordinary Shares issued to such Participant pursuant to the exercise of the Option or issuable to such Participant pursuant to any portion of the Option that is then vested are to be repurchased, the Participant shall be required to exercise his or her vested Option and any Ordinary Shares issued in connection with such exercise shall be subject to the repurchase and other provisions in the Management Partnership agreement.”

I’ve been practicing law for almost 30 years, and I can’t make heads or tails out of this sentence. Yes, this is all in one sentence. To make matters worse for this poor schmuck, he didn’t have access to the Management Partnership agreement, so even if he could understand the legal mumbo jumbo, he could not have read the other agreement to fully understand what was going on.

What is going on? The same thing as always– some people are making money off of other people’s misery. Once again, “the rich man can ride, and the hobo, he can drown.”

As usual, the comments are more enlightening than the article itself, as the comments address both sides of the issue. One commenter noted:

“You should look at it from the investors’ point of view too. If there are people willing to work under such terms, then why should they give more generous benefits to employees, especially for the ones who are not fully dedicated to the company? I understand you are angry because you left before the MSFT deal and lost all your options, but investors didn’t screw anyone. All this information was communicated clearly and employees knew that they will lose the options if they leave earlier. You should read the terms carefully.”

Really? As the blogger points out, the information was NOT “communicated clearly.” This employee certainly did not know that he would lose his VESTED options if he left or was fired.

Moreover, even if what happened was entirely legal, that does not make it ethical or moral. Father Michael Crosby is a Capuchin Fransiscan monk who owns stock in the major tobacco companies so he can attend their annual meetings and lecture the Board of Directors on their lack of morals. He once said to the Board of PMI:

“The bottom line may be profit, but there is a deeper bottom line, and that’s the moral bottom line . . . so I would respectfully ask you to examine your consciences along with your pocketbook.”

Yeah, right. As if that’s going to happen at any company, let alone a tobacco company.

Yet, there is a bright side of the article (for me at least). The blogger’s first bit of advice is to “lawyer up.”

This doesn’t help me much, however, since I can’t understand the option agreement either. That’s not my forte.

The bottom line for me is that this is now a waiting game. One thing I do know for sure at this point: when the new owner arrives, whoever it is, they will be cleaning house. It’s likely that my job will be on the cutting block. But that’s ok. I’ve got a plan . . .

And I won’t break and I won’t bend
But someday soon we’ll sail away
To innocence and the bitter end
And I won’t break and I won’t bend
And with the last breath we ever take
We’re gonna get back to the simple life again